Nam Cheong strong vessel sales momentum not losing steam

Petronas-related sales in Malaysia will spur it on.

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Up 15% in less than two months. Nam Cheong Limited’s share price was up about 15% since our initiation report (“Dominant M’sian OSV Builder”, 20/11/2012) less than two months ago. Coming into 2013, we believe the stock will continue perform well as the group rides on the strong momentum of vessel sales and the robust dynamics in Malaysian oil and gas space.

Record number of vessel sales. Last month, Nam Cheong sold one Platform Support Vessel (PSV) and two Anchor Handling Towing Supply (AHTS) vessels worth a combined US$56.4m, bringing its total number of vessels sold in 2012 to a record 21 (2011: 13 vessels). The PSV was sold to a new customer, a major marine services provider in the Asia offshore industry, while the two AHTS were to a repeat customer – Icon Offshore Berhad, one of Malaysia’s largest OSV groups. All three vessels are part of Nam Cheong’s build-tostock programme and are scheduled for delivery by 2Q13.

Malaysia’s robust oil and gas industry. We expect the oil and gas industry in Malaysia to be strong over the near-term horizon. In 2011, Petronas announced that it will invest RM300b over the next five years (or an average of RM60b per year), compared only RM150b over the previous five years. With the expected increase in offshore spending, we believe Nam Cheong will benefit from higher demand for offshore vessels.

Well-positioned for 2013. Out of the 19 vessels under its 2013 build-tostock programme, Nam Cheong has already sold nine last year, with the majority going to overseas buyers. As Petronas catches up on its projected expenditures, we believe there will be more order flow for Malaysian offshore players in 2013-14.